Did you know that there is such a thing as temporary money?
Public sector money differs from personal money in many ways. (Stephanie Kelton’s The Deficit Myth is a must see.) But many people don’t see the difference, so they apply the logic of their personal checking accounts to institutional budgets and then get confused.
For example, in my own state there is a program called Chapter 12 that provides funding for building construction or major renovations to public universities. The crowd is enough to matter. However, it is limited to construction or major renovation. That means it can’t be used for operating expenses like salaries. It also cannot be used on equipment, furniture, or software. It can only be used for a specific purpose.
In good times, that doesn’t matter. But when things get tight it creates a strange look on campus. Departments unable to replace retirees saw large construction projects and wondered how honest the administration was about the budget. “If you have money for it,” some asked with raised eyebrows, “why don’t you have money for it? What are your priorities “The premise of the question was wrong: money for construction couldn’t legally be used for salaries. It wasn’t fungible. The choice wasn’t whether to spend it on bricks or people; it was about whether to spend it on bricks or send it back to the state unspent. The misunderstanding led to a misguided anger. The money I use to make mortgage payments comes from the same account I use for groceries and utilities. It’s all in one pot. But that’s how chapters work 12 Fund not The metaphor fails Applying the wrong logic leads to fairly profound and inflammatory misunderstandings.
Now that stimulus funding is in place – CARES and CRRSSA and the ARP – I see similar misunderstandings.
The various economic funds – for which I say “Hurray” when someone scores – are marked with two large asterisks. The first is that a set percentage of each college’s allocation must be given directly to students; The colleges only act as passageways. From the perspective of the institutional budget, this part of the money does not exist. The second thing that is more subtle is that the money comes with expiration dates; If you haven’t used it by a certain date, you will lose it.
For practical reasons, this limits its use.
As far as I know, the original idea behind the stimulus money was to help people and institutions to resume normal economic activity. It should also help meet the direct costs of fighting the pandemic. For example, we used part of the stimulus money to pay for an institutional Zoom license, the need for which was a direct result of the pandemic. In recent rounds, we have been able to offset some of the revenue lost due to the pandemic, whether it be from a sudden hit on registration or the forced cessation of ancillary services such as facility rentals and on-campus catering.
With the remaining money, however, we have to think differently than with normal business financing. This money is going to go away soon. If you take on large expenses that will outlive it by decades – like permanent employees, for example – you create a structural deficit that becomes apparent once the temporary money is gone. For a college facing a long-term enrollment or funding problem, investments that reduce long-term costs would be the best use of temporary money. This way, the remaining money has fewer entitlements when the temporary money is gone.
As with Chapter 12, this can lead to weird juxtapositions. However, some of these make sense when you specify time as a variable. For example, if a college typically allocates a certain amount to replace old furniture, a sudden surge in furniture spending could reduce that allocation in years to come. We can’t keep the money for long, but we can keep furniture for many years. Investing in energy efficiency has a similar appeal: it converts a short-term burst of money into a long-term household space. Money that is not spent on heat or electricity can be spent on people.
The key is to move away from the checking account metaphor. In a checking account, every dollar is the same as every other dollar. Public sector households have different rules for different dollars. It is possible for a college to be flush in the short term and still face a serious long term funding challenge. The ones who handle this best will be the ones who understand the distinction between the two.